APY Calculator
Convert nominal interest rate (APR) to annual percentage yield (APY) and compare compounding frequencies
Rate Details
Results
Annual Percentage Yield (APY)
5.116%
Nominal Rate (APR)
5.000%
Rate Difference
+0.116%
Continuous APY
5.127%
Max Boost (Cont.)
+0.127%
Interest on $10,000 (1 year)
Simple
$500.00
Compound
$511.62
Benefit
+$11.62
APY by Compounding Frequency
| Frequency | APY | vs APR |
|---|---|---|
| Daily (365) | 5.127% | +0.127% |
| Monthly (12)● | 5.116% | +0.116% |
| Quarterly (4) | 5.095% | +0.095% |
| Semi-Annually (2) | 5.062% | +0.062% |
| Annually (1) | 5.000% | +0.000% |
| Continuous (∞) | 5.127% | +0.127% |
Complete Guide to Annual Percentage Yield (APY)
What is APY?
Annual Percentage Yield (APY) measures the real rate of return on a deposit over one year, including the effect of compound interest. While a bank may advertise a 5% nominal rate (APR), the actual yield depends on how often that interest compounds — daily, monthly, quarterly, or annually.
APY is the standard metric for comparing savings accounts, CDs, and money market accounts on equal footing. If you are evaluating CD offers, our CD Calculator lets you project maturity values over specific terms, while this APY calculator focuses on the rate conversion itself.
APY Formula
APR → APY Conversion:
APY = (1 + r/n)^n − 1
Where: r = nominal annual rate (decimal), n = compounding periods per year
Reverse (APY → APR): Nominal Rate = n × [(1 + APY)^(1/n) − 1]. Use this when you know the APY and need to find the stated rate for a given compounding frequency.
Benefits of Understanding APY
Apples-to-Apples Comparison
Banks quote rates differently — some show APR, others APY, with varying compounding. Converting everything to APY lets you compare any two offers directly, regardless of how they are marketed.
Real Return Visibility
APY shows what you actually earn. A 4.80% APR compounded daily yields 4.917% APY — that extra 0.117% means $11.70 more per $10,000 per year. On large balances, the difference adds up fast.
Informed Negotiation
Knowing APY empowers you to negotiate with banks or credit unions. You can point out that a competitor offers a higher effective yield even if their advertised APR looks lower.
Inflation-Adjusted Planning
Subtracting the inflation rate from APY gives you the real yield on your savings. Use our Inflation Calculator to check whether your APY outpaces purchasing-power erosion.
Tips for Maximizing APY
Choose Daily Compounding: When comparing two accounts with the same APR, pick the one that compounds daily over monthly. At 5% APR the difference is 5.127% vs 5.116% APY — small per year, but it compounds over time.
Use the Rule of 72: Divide 72 by your APY to estimate how many years it takes to double your deposit. At 5.12% APY, your money doubles in roughly 14 years. Our Rule of 72 Calculator gives the exact doubling time.
Watch for Promotional Rates: Some banks offer high introductory APYs that revert to a lower rate after 3–6 months. Always check the ongoing rate and calculate your blended APY over the full year before committing.
Common APY Mistakes
Confusing APR with APY
Comparing a savings account quoting 5.00% APY with a CD quoting 5.00% APR is misleading. The CD might actually yield 5.12% APY with daily compounding — making it the better deal. Always convert both to APY before comparing.
Ignoring Compounding on Loans
For borrowers, more frequent compounding means higher effective cost. A credit card advertising 18% APR compounded daily actually charges 19.72% APY. Use our Compound Interest Calculator to model the full cost of debt over time.
Overlooking Balance Requirements
Some high-APY accounts require minimum balances or limit the amount that earns the advertised rate. A 5.25% APY that only applies to the first $10,000 while the rest earns 0.50% gives a much lower blended yield on a $50,000 deposit.
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OpenFrequently Asked Questions
What is APY (Annual Percentage Yield)?
APY is the effective annual rate of return on a deposit or investment after accounting for compound interest. Unlike the nominal rate (APR), APY reflects how often interest is compounded within the year. A 5% APR compounded monthly produces an APY of 5.116%, meaning you actually earn 5.116% on your money over one year.
How is APY calculated?
APY = (1 + r/n)^n − 1, where r is the nominal annual interest rate (as a decimal) and n is the number of compounding periods per year. For example, 5% APR compounded daily: APY = (1 + 0.05/365)^365 − 1 = 0.05127 = 5.127%. The more frequently interest compounds, the higher the APY relative to the stated APR.
What is the difference between APR and APY?
APR (Annual Percentage Rate) is the nominal rate stated by the bank without factoring in compounding. APY includes the effect of compounding — interest earning interest — so it is always equal to or higher than the APR. For savings products, compare APY. For loans, lenders typically advertise APR, which understates the true cost when compounding applies.
How does compounding frequency affect APY?
More frequent compounding increases APY because interest is added to the principal more often, generating interest on interest sooner. At 5% APR: annual compounding gives 5.000% APY, monthly gives 5.116%, daily gives 5.127%, and continuous gives 5.127%. The gap widens at higher rates — at 10% APR, the daily APY is 10.516% vs 10.000% annually.
What is continuous compounding and how does it compare?
Continuous compounding is the theoretical maximum where interest compounds infinitely often. The formula is APY = e^r − 1 (where e ≈ 2.71828). In practice, daily compounding (365 times/year) gets within 0.001% of continuous compounding for most rates. Banks rarely offer continuous compounding, but it serves as the upper bound for any given APR.
How do I convert APY back to a nominal rate (APR)?
Use the reverse formula: Nominal Rate = n × [(1 + APY)^(1/n) − 1], where n is the compounding frequency. For example, to find the APR that produces 5.116% APY with monthly compounding: APR = 12 × [(1.05116)^(1/12) − 1] = 12 × 0.004167 = 5.000%. This calculator's 'APY → Nominal' mode does this conversion automatically.